Wage Moderation in Crises: Policy Considerations and Applications to the Euro Area

By Jörg Decressin, Raphael A Espinoza, Ioannis Halikias, Michael Kumhof, Daniel Leigh, Prakash Loungani, Paulo A Medas, Susanna Mursula, Antonio Spilimbergo, TengTeng Xu

November 17, 2015

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Jörg Decressin, Raphael A Espinoza, Ioannis Halikias, Michael Kumhof, Daniel Leigh, Prakash Loungani, Paulo A Medas, Susanna Mursula, Antonio Spilimbergo, and TengTeng Xu. Wage Moderation in Crises: Policy Considerations and Applications to the Euro Area, (USA: International Monetary Fund, 2015) accessed November 22, 2024

Disclaimer: This Staff Discussion Note represents the views of the authors and does not necessarily represent IMF views or IMF policy. The views expressed herein should be attributed to the authors and not to the IMF, its Executive Board, or its management. Staff Discussion Notes are published to elicit comments and to further debate.

Summary

The paper studies the impacts of wage moderation in the euro area. Simulation results show that if a single euro area crisis-hit economy undertakes wage moderation, the impact on output is positive for that economy and for the entire euro area. If all crisis-hit economies undertake wage moderation together, their output still expands, albeit to a lesser degree. If the wage moderation is accompanied by cuts in policy interest rates by the central bank—and by quantitative easing once interest rates hit the zero lower bound—then output for the entire euro area expands as well.

Subject: Financial services, Labor, Real interest rates, Real wages, Wage adjustments, Wage bargaining, Wages

Keywords: Area economy, Crisis, Crisis economy, Crisis-hit economy, Current account, Economy, Euro, Euro area, Fiscal policy, Global, Internal devaluation, Partner economy, Real interest rates, Real wages, SDN, Undertaking wage moderation, Unemployment, Wage adjustments, Wage bargaining, Wage moderation, Wages

Publication Details

Pages:

36
Volume:

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DOI:

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Issue:

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Series:

Staff Discussion Notes No. 2015/022
Stock No:

SDNEA2015022
ISBN:

9781513537009
ISSN:

2617-6750

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